Virgin Money UK PLC (LSE:VMUK)’s third-quarter trading update showed a bank tacking margin pressure through higher mortgage rates, while stripping back services expenses to maintain cost ratios.
During the third quarter, the total number of active relationship customer accounts increased by 51,000, reaching 3.7 million.
Mortgage balances remained stable at £57.5 billion despite a subdued market, while business lending saw a 1.6% increase, reaching £8.7 billion, driven by 2.6% growth in balances.
Unsecured lending experienced a 2.4% increase to £6.3 billion, primarily due to 3.9% growth in credit card balances.
Deposits showed positive growth by rising by 0.4% to £67.3 billion, with term deposits attracting customers with competitive rates.
Virgin Money UK managed to maintain its net interest margin (NIM) at 193 basis points during the quarter, despite a pinch on mortgage spreads, supported by higher rates.
Therefore, the bank reiterated its NIM guidance for the full year of around 190 basis points, expecting stability across the second half compared to the first half of the year.
Non-interest income was modestly lower quarter on quarter due to changes to packaged account benefits and reduced associated fees, aligned with consumer duty regulations.
In addition, the group continues to face short-term headwinds from lower merchant services income following a strategic change in its payments partner.
On the costs front, upward pressure imposed by regulatory investment and inflation was offset by a reduction in services expenses, thus the bank reiterated its cost-to-income guidance of 51% to 52%.
Chief executive David Duffy said: "We have delivered another quarter of good progress against our strategy, with growth in both deposits and our target lending segments. Given our strong capital position, we anticipate a total of £175m of buybacks for 2023 with more to follow as we normalise our surplus capital position by the end of next year.
“Our overall credit quality remains stable and we are fully committed to doing the right thing by our customers, through competitive rates, innovative products and proactive communication, as well as supporting government initiatives to help people through the current challenging environment."
Virgin Money also commenced the £50 million share buyback spree first announced in May 2022 today, when the group disclosed a 30% full-year dividend pay-out, supplemented with buybacks.